The latest assessment of property taxes in the U.K. has sent alarm bells through some sections of the hotel industry, particularly independent hotels. Hoteliers are looking to offset increasing expenses with cost efficiencies elsewhere in their business, but they’re also working hard with lobbyists to push for fairness.
REPORT FROM THE UNITED KINGDOM —It has been a full calendar year since the United Kingdom’s latest revaluation of commercial property taxes (or business rates as they are known here), and hoteliers are sounding a general alarm that the increases are adding additional burdens, particularly on independent hotels.
As hoteliers implement cost efficiencies to offset tax raises, they’re also working to ensure that the next time rates are assessed—a process that begins in 2019—the government has a clearer understanding of cost pressures on the industry, sources said.
Business rates are calculated on the rateable value of any property multiplied by a multiplier set by the government. There are differences in the regulations for each of the four main U.K. countries.
In addition, business rate relief is available to some that have seen large increases, although that generally depends on any hotel’s jurisdiction. Businesses in areas with populations less than 3,000 also are eligible for rural rate relief.
Independent hotels often face the brunt of increases compared to chain hotels, which often are better able to trim large-scale costs related to distribution, information technology and supply chain.
Geographical discrepancies also have occurred. Hotels in London and the Southeast generally have higher rate costs than those elsewhere, as might be expected.
“If you have scale, costs can be shared across a platform, but for the small independent hotels, any increase in rate bills could be the difference between an operation that is profitable or non-sustainable. Independent hotels have been particularly hard-hit,” said Kate Nicholls, CEO of UKHospitality, the main lobbying association for the U.K. hospitality and hotel industry, a March 2018 merger between the British Hospitality Association and Association of Licensed Multiple Retailers.
“Independent hotel owners have put in the investment in their hotels during the recession, and now are being hit twice,” Nicholls said.
Not all those with independent hotels or small portfolio are feeling pain.
Paul Callingham, managing director of Starboard Hotels, which has two independent properties in its portfolio, said business rate changes have not been overly onerous in the provinces of the U.K.
“We’ve not been adversely affected. Actually, some (rates) have gone down,” Callingham said.
That’s not to say discomfort is not out there.
Adam Hamadache, associate director of the 18-key Cranleigh Boutique, in Bowness-on-Windermere in England’s Lake District national park, and CEO and founder of hotel marketing firm Direct Hotel Marketing, said the main reaction from hoteliers is one of frustration.
Cranleigh also operates other lodging options in the Windermere area, including the Church Suites and self-catering villas The Hideout and Bon Vivant.
“Business rates is one area you can do very little about,” Hamadache said.
“I’m a pragmatist and would always encourage my peers and colleagues to focus their attention and efforts on areas that are within their influence,” he said.
UKHospitality has Parliament firmly in its sites when the next revaluation process begins next year, although no changes will hit businesses until 2021, which falls on the far side of the next General Election, Nicholls said.
UKHospitality’s job is to increase the collective voice of the U.K. hotel and hospitality industry against what it saw as a government somewhat oblivious to the strains on businesses, she said.
“If there is a big tax on a car plant or manufacturing base, and that hurts, you can see it immediately, but if one small business goes under, then no. It is a death by a 1,000 cuts,” she said.
“The last time we had this level of pain, it was 2007 and 2008, and we have to remind government that the High Street then was saved by the hotel-hospitality business,” she added.
Nicholls said while government and independent support are available, one huge different in the latest round of rates was that rate payments could be spread over five years, but now that has been pruned to one or two years.
Her organization and hoteliers themselves needed to make sure the valuation system the next time around is fairer and more attune to pressures on the High Street, she said.
“Where rental properties are doing well, businesses are being harder-hit, and we’ve seen that most acute in successful market towns and tourist areas,” she said, adding that she also saw rates increasing in the South and Southwest.
Nicholls said property rates have shown significant increases, even as high in a few cases as between 300% and 400%.
“That can be the tipping point for a business,” she said.
For Cranleigh’s Hamadache, any move toward a tipping point means hoteliers must continue their battle with online travel agencies.
“Hoteliers should look to market their product in ways that will lead to more direct bookings,” he said. “A small increase in direct room sales for most hotels would cover the incremental cost of the business rates in most cases.”
Hamadache also believed government should reduce the value-added tax to 5%, a long-standing BHA/UKHospitality lobbying issue to put on par the tax in the U.K. with levels seen in competitive European countries.
“This would have a monumental impact to business in this sector and would readdress the balance of the agencies taking the lion’s share of the profit from each booking,” he said.
The government moved the next revaluation a year earlier than planned, with Chancellor of the Exchequer Philip Hammond also confirming revaluations would take place every three years, not five, which it is hoped will allow businesses to have more control over rate increases.
“We must make sure they deliver on that,” Nicholls said.
“You must have an accurate idea of costs and revenue, or you will always get an inflated bill, and the rates also take no notion of investment. We need a methodology that works and a review of how costs affect businesses. After all, Amazon can move, but you cannot relocate a hotel,” she said.
“It should be a tax on business, not on property,” she added.
Nicholls said she is hopeful the government’s pledge to reform the system is honoured. That pledge was made in the government’s manifesto leading to last year’s general election.